Thursday, 24 May 2012

How to speak publisher: E is for Earning out

'Earning out' is what you hope your book will do. Remember the advance? It's what the publisher paid you a very long time ago when you started/sold your book. We talked about the advance at the start of How to speak publisher.

Your book earns out if/when it has earned enough in royalties to cover the advance the publisher paid you. Here's a bit of simple maths. Simple, I said. Don't hide behind the sofa, there. Maths is your friend - don't leave it to the publisher or your agent.

Stroppy Author gets an advance of £5,000 - hurray!
This means that to earn out the advance, the book needs to earn £5,000 in royalties

Stroppy Author's book sells for £10 a copy.

Stroppy Author gets a royalty of 10% - hurray!
This means that the royalty on each copy is 10% of £10 = £1
So to earn £5,000, the book would need to sell 5,000 copies at its cover price.

These are not real figures; this never happens - but that's the principle.

While we're on maths, let's do a spot of counting.
The press likes to shout about six-figure advances. This is to confuse people, who usually assume that a six-figure advance is a million pounds/dollars/euros. It isn't - a six-figure advance is one represented by a number that has six digits, so it is £100,000 (or $100,000) or more. Count the figures: a 1 and five 0s, that's six. Don't count the comma. So if you hear that an author has a five-figure advance, that means they have £/$10,000 or more, which is not necessarily very much. Obviously £99,000 is quite a lot; but $10,000 is not.

Some books never earn out their advance and are not even really expected to. If a publisher pays an advance of £300,000, this is largely to grab a lot of publicity. The book might earn out, but no one will be hugely surprised if it doesn't because a lot of these gambles don't pay off. To the author, the big advance seems to be a sign that the publisher is certain their book will be a bestseller. In fact, it's a sign that the publisher hopes their book will be a bestseller and thinks there's a pretty good chance it will be. But it's cheaper to pay an advance of £300,000 and get lots of free press coverage than to invest in posters all over the underground and buses. The publisher can still make a huge profit even if this book doesn't earn out.

How quickly your book earns out depends on the following factors:
  • how large the advance was in the first place
  • the royalty rate
  • the price the books sell for.
There is a lot of room for wild variation here. Advances range from zero to £/$1,000,000. Royalty rates range from less than 1% to 10% (sometimes even higher after some massive number of sales - but very rarely). Books sell for anything from cover price to 90% discount. At some levels of discount, the royalty might disappear completely. This is generally to cover the publisher shifting the remaining copies for next-to-nothing when they've decided to give up on it.

I have books that will never earn out the advance. This is not because the advance was large, but because the royalty is pitifully small and it's a royalty on nett receipts (what the publisher actually gets, rather than the cover price) from books sold at massive discounts. I can think of a book that will have to sell 100,000 copies before I receive any royalties, and it's only sold about 40,000 so far in four years or so. It doesn't much matter, as I knew this was what would happen and was happy with the advance. In this case, you have to think of the advance as being a fixed fee and then if the book does earn out, the extra money is a bonus. Hooray!

On the other hand, I have a book that earned £1,000 royalties in the first two weeks - because it sold at cover price, had back orders and had a very small advance. Again, I knew this would happen - but it's more of a gamble because if the projections were wrong, or the publisher went bust or decided to discount the books, I'd earn very little from the book.

Understanding what you are getting is crucial. You might feel it's OK to accept a small advance if (a) you can live without the money for now and (b) you are confident you will get enough in royalties to make the deal worthwhile in the long run. Do the maths, though - how much will you really get?

Let's look at that hypothetical book at the start, the one with the £5,000 advance. Assume there is no advance. How many copies have to sell before you earn £5,000? Five thousand? No.

Cover price = £10; copies sold at (say) 40% discount, so nett receipts = £6 per copy
10% royalty = 60p per copy.
On that, your agent takes 15% + 20% VAT (in the UK) = 9p + 1.8p per copy = 10.8p per copy.
So for each copy sold, you get 60p - 10.8p = 49.2p.
That means it takes 10,163 copies for you to get £5,000.
(Of course, your agent would also take 15% + VAT of your advance, so your £5,000 advance comes to £4,100 in your bank. You need the book to sell 8,333 copies to make that.)

(You can use these sums in other territories. Swap £ for $ or Euros and p for cents.)

All this means that you need information in order to make a sensible decision about the contract you're offered.

In particular, you need to know the print run (how many copies the publisher will print), when they expect to reprint and how much they expect to sell the books for. Ask how long you expect it to take for the book to earn out the advance. A good publisher will be willing to tell you the print run and should be able to give you an estimate of the last two.

It's sensible to base your decision on the first print run - after all, if the publisher was certain the book would sell more copies, they would probably order a larger print run (but not necessarily - warehousing printed copies costs a lot, and there is cashflow to consider).

That book that earned £1,000 in the first for fortnight: I know that if the first print run sells out, and the average discount is 30%, the royalty will be nearly £9,000. The book will almost certainly reprint. I've written books that won't earn out, and have taken as long to write, for an advance of less than £9,000.

The lesson is, as always, ensure you have all the information you can get and make a decision based on it (and maths, if necessary).

  • The advantages of a large advance are: you have money in the bank; you feel valued; the publisher is likely to work hard to sell the book because they have invested in it; the money you get (initially) is unaffected by the cover price/discounting.
  • The disadvantages of a large advance are: it takes a long time to earn out; if the book doesn't earn out, the publisher will be less likely to commission your next book; people will be bitchy about you and assume your book is bad.
  • The advantages of a small advance are: the book is likely to earn out, so you get some royalties, which always feels good when the book was written long ago; the publisher is more likely to commission your next book, especially if it sells better than expected
  • The disadvantages of a small advance are: you don't have much money while you are writing the book; you feel undervalued (but that's subjective - work on your attitude!); people will be bitchy about you and assume your book is bad - but this time only if you tell them how large (small) your advance is, because the publisher isn't going to be shouting about it in The Bookseller.
What is not acceptable is for publishers to offer a very low advance AND a very low royalty rate, which is becoming increasingly common. An advance of £400 and a royalty of 2%? (This is a real offer, not from 2012, but recent.) That's ridiculous. Of course, the book might earn out. But you won't have very much money either way.



  1. Thank you for this. It explains the whole concept in language I understand - even the maths!

  2. But, realistically, how many books actually sell even 5000 copies? Sigh.

  3. Fascinating and rather shocking figures.

    The profits from self-publishing shine in comparison. I feel extremely fortunate that no agent took me on - I know I've made considerably more than if I'd signed a traditional contract.

  4. A very in-depth analysis. Thank you. I'll come back to this next time I'm negotiating a contract with a publisher...

  5. Low advance and low royalty?Sounds like education Publishing! I have some that are still coming in with royalties after years, others that sold out here and still gave me no royalties due to this nett receipt thing, yet I did get some royalties from the US edition. My first trade book earned out in three months, then a GST was introduced and it never happened that quickly again. I rely on PLR and ELR most years. You're right, advance and royalties are messy!

  6. Thank you, folks.

    Lexi - do you actually make enough to live on from self-publishing income? I think if authors who are not either already a household name OR one of the tiny number who take off are able to make a living wage from self-publishing, the landscape might change. It will possibly happen in genre fiction first. I don't see it happening in children's pubishing for a while yet. Sadly. But I would *love* to hear that I'm wrong...

    Sue - yes, educational publishing has always been like that. And now it's even worse! PLR is capped at £6000, so although it's really useful money, I couldn't live on PLR and nothing else. And, of course, your PLR starts to drop off if you don't keep writing. I do take account of the PLR/ALCS potential of a book when deciding on whether to take a commission, though, as over time it can be a significant portion of the income from a book.

  7. I am a designer jeweller/silversmith, so not writing full time, and what I have made thus far is no indication of what I will make in the future. That said, since I e-published my first book in August 2010 I've made a profit of over £21,500, mostly from my two novels Remix and Replica. On Kindleboards there are many indies doing better than I am.

    Traditionally-published authors are much more coy about their sales and income than indies, but from what I have gathered, few midlist authors make much of a living these days.

  8. Can't believe you made that much, Lexi - congratulations! Have ordered Remix to see how you did it...

  9. Lexi, that's brilliant! I think children's books are taking off more slowly - but I'm so pleased you are doing this well. Congratulations!

  10. Thanks, SA - but I should have said there is a lot of luck in publishing, and I was lucky. Also that we may be nearing the end of the golden age of indie publishing; if so, I hope traditional publishing smartens up its act and does better by writers and readers.

    Sue, thanks for buying Remix and I hope you enjoy it :o)

  11. That's great information to have to hand, and makes self-publishing seem a more attractive proposition. My last two approaches to conventional (and well known in their genre) publishers resulted in them asking me for an author contribution to costs, in the order of a four-figure sum!

    1. Maybe well known, Derek, but not repectable if they asked for a ocntribution. No 'real' publisher ever asks an author to pay towards production. The most you might have to do is pay for permissions if you are including a lot of copyright material (particularly in academic publishing).

    2. I hear you. I was shocked, but it helped me make up my mind about self-publication - for this novel anyway.

    3. I am glad you made the right choice! No one should support these leeches who prey on writers who don't know the ropes. I wish you all the best with your novel!

  12. Really good blog, helpful to everyone. I will tweet!

  13. This is really fascinating information. I'm glad that I went down the self-publishing route. I wonder if traditional publishers are still paying low royalties on e-books.

    Martin Lake

    1. In some markets, yes - I know of a big publisher offering 1% on educational e-books.

  14. I'm ashamed to say I haven't looked into this as thoroughly as I might have done - will you personally be in debt (to the publisher) if your book sales doesn't out-earn your advance? Or does the publisher simply write off the book as a loss-maker?

    1. The publisher writes off unearned advances, Anonymous. You should never have to pay (or pay back) a real publisher anything - unless, of course, you take the advance and don't deliver the book. But as long as they accept the book, the advance is yours even if they don't sell a single copy.

      Further, the advances on books should be separate: so if you write two books for a publisher and one earns out and the other doesn't, you should get royalties on the one that has earned out with no reference to the other book. I did a post on A is for Advance which explains a bit more about that if you need it.

  15. It's true that traditionally published writers tend to be coy about the money, while self-published writers tend to talk about it quite a bit. It's a convention at least if it's not actually contractual not to discuss your advance I think, so I'll go anonymous. I got over £30K for my first book - it sounds like a lot but of course it's spread over 3 financial years. It has yet to earn out but still has a good chance, as it's earned money not just from sales but from serial and broadcast rights. For my next book I'm going small press - much smaller advance, but I should start getting royalties much sooner. I also earn from commissions for associated features and occasional public appearances. This is my sole income - I could probably earn as much stacking shelves at Tescos, but i would rather be a poor writer than a rich banker.
    Thanks for this analysis; it's more complicated than people think and I'm glad I have an agent to work for my best interests.

    1. Hello Anonymous - I'm sorry but Blogger put your comment in Spam, which I rarely check as only 1% is not actually Spam. It doesn't like Anon comments, I'm afraid - though I quite understand why you went anon for this comment.

      You're absolutely right - people think an advance of £30K sounds a lot, and rarely reflect that if this is your full-time job it is NOT a lot if the book takes you the best part of a year to write.

      I agree: much better to be a poor writer than a rich banker. And better writing than Tesco!

  16. Thanks very much, stroppy author! I actually had no idea this was the case. It's a strong argument in favour of conventional publication (as opposed to self publication). Although I guess this would very much depend on the size of the advance...

  17. Great article, thanks for writing! More weight to the idea that traditional publishers really need to sort themselves out, or more and more authors are going to compare the financials and choose to self-pub.

  18. Really clear and interesting. I had read all the technical, contractual stuff in Carole Blake's book 'From Pitch to Publication' and my brain was spinning. It's good to see it in plain summary, and I'm glad to know that I had understood it (more or less)right.I still don't see self-pub paying at the moment outside mostly established and genre writers, though. It seems to me, currently, that it's the elements of speed, freedom and self-determination that are its biggest attraction.

  19. Sailingthevoid, Scribble Spud - isn't it fascinating how the same figures encourage people in different directions! I am still inclined to stick with traditional pubishers because I don't want to spend my time marketing. And as the only breadwinner, I'm better of with a known advance than a totally unknown self-generated royalty.